How to improve execution and tests of internal control

Internal Control is an essential element in Compliance Risk Management. And the correct execution of control is essential to reduce risks. The definitions of control change constantly due to new regulations, policies and standards, but the control tests usually continue to be a manual process, pressurized by terms.

Limited resources and the pressure to reduce costs have led Compliance Risk Management to face an even greater challenge to include new requirements in its framework of control and processes.

The traditional approach to test compliance control offers few opportunities to add value, usually resulting in an exercise of executing checklists with high fixed costs, lack of flexibility and risk of inconsistency in quality.

Understanding the basics

Understanding the main compliance control in the organization and also assigning its responsibility is an important point. If the responsibility is incorporated in the organizational structure and aligned with critical business processes, this framework will be more resistant to the changes in course of the organizational structure.

It must be the basis of structuring risk management and compliance within the organization. Only then will there be conditions on which rationalization and simplification of control can occur. Finally, automation will be the last step. This sequence of responsibility, rationalization, simplification and, then, automation, offers the opportunity of improving the efficacy of the management and business units. It will also aid in speeding up the underlying processes and increasing the awareness of risks and control of the organization.

Three non-exclusive alternatives, nevertheless, deserve to be presented, in order to further increased productivity of execution and control tests.

1. Internal tests

The internal test refers to the most usual control test process in organizations, where certain levels are responsible for the execution of the compliance control activities, as well as their tests, and another level is responsible for the independent monitoring of the test results.

External parties can offer support related to test activities with a more efficient and effective design of the test process in different areas, such as governance, description of control, planning, description of standard operating procedures and process. This makes the basis for tests and monitoring more streamlined and opens the way to improvements such as:

Optimization of compliance control frameworksand test scripts

Consistency in the execution of test activities

Coordination and supervision of test activities in a central location

Transfer of knowledge to staff

Improvement of awareness concerning risks and furthering the importance of the compliance control test activities

2. Tests as a service

An alternative for increasing focus and quality regarding test activities can be implementing offshore specialists. A unit fully dedicated to executing test activities with the highest quality and efficiency. These offshore control test specialists are always updated with the latest regulatory requirements and/or technical standards from all over the world.

Contracting tests as a service can optimize efficiency, improve consistency and reduce costs, while the results of the high quality tests remain available to the contracting party at any moment by means of online portals.

The test service will lead to a more streamlined compliance test team, but on the other hand it requires an internal team with a solid and totally functional basis, sufficient internal risk and control knowledge and a clear governance structure.

3. Continuous Internal Control Monitoring

The availability of data required to test control has increased in recent years, offering the possibility of automatic test activities. Compliance control can usually be automated by systems, but sometimes this possibility is ignored by management. It concerns Continuous Control Monitoring (CCM).

CCM is a solution which can be used to monitor control in a focused, smart and actionable approach. Events which differ from the agreed control approach are recorded automatically in real time.

Using completely automated tools, the internal capacity required to test control can be reduced significantly, while the efficacy, speed and quality of the compliance control test activities are improved. Furthermore, it will reduce the “seasonal standards”, with high peaks of work load related to control test activities.

The use of CCM indirectly improves business processes and activities releasing internal capacity, while control test cost effectiveness is improved by automation. Deviations are identified more quickly, offering the opportunity of correcting them faster and, thus, avoiding an event which could have led to an incident. Using sophisticated control panel, management is fully controlled and quicker decision-making is facilitated.

There is still a lot of room to evolve and innovate in this internal control and test area. Make an internal evaluation, opt for the strategy most appropriate to your context and seek technological aid!

SoftExpert can help you by offering a complete and dynamic solution of risk management and compliance.

MBA in Strategic Management from UFPR. Business and market analyst at SoftExpert, a software provider for enterprise-wide business processes automation, improvement, compliance management and corporate governance.

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The Excellence Blog shares knowledge, concepts and solutions for excellence in management. SoftExpert is a market leader in software for enterprise-wide business processes automation and improvement, compliance management and corporate governance, with more than 300,000 users from 2,000 organizations, operating in over 30 countries worldwide.